Debit cards target the credit shy, while layaway is making a comeback

As some millennials
continue to shy away from credit cards, lenders and retailers are tailoring alternative
credit products to the shopping preferences of this booming age group.

In recent
weeks and months, Venmo, Starbucks and SoFi have rolled out credit products aimed squarely at millennials. Some retailers courting
millennials, meanwhile, now offer point-of-sale loans to help break up payments
for big purchases and have even brought back layaway for younger consumers.

Here’s a
quick rundown of the new credit products and credit alternatives:

Debit and prepaid cards from
millennial brands

Venmo: In June, peer-to-peer payment app
Venmo (a longtime favorite of millennials) introduced out a Venmo Mastercard. Available in six colors (and it’s
contactless), the Venmo Mastercard is a debit card that can be used at any
store that accepts Mastercard.

Starbucks: Millennials’ favorite
international coffee shop chain announced recently that it’s rolling out a
prepaid Visa debit card that offers bonus points on every purchase. The prepaid
debit Starbucks card arrives just months after the Chase co-branded credit
card debuted.

“The
Starbucks Rewards Visa Prepaid card is a unique financial solution for a
growing population of customers looking for alternative tools for money
management,” Starbucks and Chase wrote in a news release.

SoFi: The online lender – which markets
itself as a lower cost loan provider for millennials with impressive resumes
but thin credit histories – announced earlier this year that it, too, is
getting into the card business.

SoFi fans
soon will be able (there’s currently a waitlist) to get a SoFi Money
debit card linked to a SoFi checking account.

Interestingly,
both the Venmo and SoFi cards are visually different from traditional credit
cards. You might even say they turn the usual credit card on its head
since they’re vertical instead of horizontal in look.

Point-of-sale loans, and layaway is
new again

Retailers
are also increasingly offering credit card alternatives to consumers who don’t
want to charge their purchases to a high interest card – or can’t qualify for
traditional credit.

For
example, WayFair, La-Z-Boy and Home Depot offer instant point-of-sale loans from lenders such as Affirm, Bread
and GreenSky.

Structured
like an installment loan, point-of-sale loans are often marketed to millennials
as a simpler, more transparent form of financing – a pitch that often resonates
with young people who have felt burned by student loans.

Affirm has
even teamed up with Apple on an in-store option that users can take with them to
any store that accepts Apple Pay.

Layaway –
the old-school financing option that usually shows up just around the holidays
– is also having a moment.

Fashion
giants Anthropologie, Free People and Urban Outfitters (all owned by the same
company) announced in May that they’ve begun offering an online layaway program
called AfterPay that lets shoppers pay over time for their purchases, without
owing any interest.

Unlike
traditional layaway, AfterPay lets users order their items for immediate
delivery, even though they haven’t finished paying for them. But if shoppers miss
any payments, they’ll owe additional charges.

Will the
addition of an online layaway program from three of the most popular brands in
millennial fashion cause other retailers to create layaway programs of their
own?

“I think
you’ll see more issuers jumping into this,” Forrester Research’s Brendan Miller
noted in an interview
with MarketWatch.

Here’s how
Afterpay’s CEO Nick Molnar explains the program, which “is particularly
relevant for millennials who are reluctant to use credit cards and other forms
of traditional finance”:

“Afterpay
helps shoppers get over that initial price hurdle by offering a platform to
help budget for things that they want without needing to take out a loan or
open a credit card,” Molnar said in a news release.

Are these payment alternatives a threat
to credit?

Credit card
alternatives offer another option for millennials reluctant topay with a credit card, but retailers
and payment companies aren’t giving up on credit cards altogether.

Instead,
many retailers are pursuing both payment options.

For
example, similar to Starbucks, online lender SoFi is rumored to be working
on a more traditional credit card. According to Bloomberg, it could potentially debut a new
credit card sometime within the next year.

Meanwhile,
retailers are continuing to hawk store credit cards, even as they add new
payment options to their portfolios.

The upshot
for consumers: Millennials (and all shoppers) have more choices now in how they
finance their purchases.

Shoppers can avoid credit
cards altogether and still finance bigger ticket items that they can’t afford
upfront. Or, they can mix and match and use credit cards for some purchases, and
card alternatives such as online layaway for others.

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